The Nobel Prize for Economics, 2021
Prof. Sahana Ghosh, Academic Consultant (Professor), IQ City United World School of Business, Kolkata Economics is the only subject in the Management Science that has a Nobel Prize to its name, or nearly so. The Nobel Prize is awarded for contributions to Physics, Chemistry, Medicine, Literature and Peace every year, in accordance to the 1895 Will that Alfred Nobel (the owner of the Swedish arms manufacturing company, Bofors, till his death) wrote. Nobel wanted that the money he left behind be used to give prizes to one person who made significant contribution in each of these areas which made the “greatest benefit to mankind”. Economics was not considered such a subject then and even when the Prize actually began in 1901. Society began to think otherwise over the years since then and from 1969, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was instituted and this prize has now commonly come to be known as the Nobel Prize for Economics. Every year since then, the Prize has mostly gone to economists who have developed theories in various areas of Economics – Industrial Organization, Financial Economics, Growth Theory, Macroeconomic Theory, Social Choice Theory (Amartya Sen), Behavioral Economics, and so on. The 2021 Nobel Prize for Economics marks a change in the trend. It is a recognition not to theoretical Economics but to empirical causality study. Half of the Prize amount has been awarded to David Card and the other half awarded jointly to Joshua Angrist and Guido Imbens for their contribution to natural experiments in Economic research, which is somewhat similar to those done in clinical research for pharmaceutical development. In contrast to the theory of random control experiment in development economist, for which Avijit Binayak Banerji and Esther Duflo was awarded the Nobel Prize in 2019, natural experiments do not attempt to study the effect of intervention programmes over the long term. Angrist and Imbens have solved the methodological issues for studying cause and effect relations. Card has also used natural experiments to study labour dynamics. Natural experiments have been conducted with long term data to study whether imposing minimum wages legislation reduce employment, whether immigration leads to reduced income and employment in the host country, or whether banning smoking in workplace reduces overall consumption of tobacco. Using natural experiments in social science has methodological and data challenges but it will perhaps rid Economists of the criticism that it is too theoretical and most of its predictions usually go wrong. Causality results may also be immensely beneficial for policymaking by governments which are forever fumbling for options.